DEUTSCHE TELEKOM CAPITAL MARKETS DAY 2018 Germany Dr. Dirk Wssner - - PowerPoint PPT Presentation

DEUTSCHE TELEKOM CAPITAL MARKETS DAY 2018

Germany

• Dr. Dirk Wössner

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

Key Messages

01

Market with Stable growth

The German telecommunications market has returned to stable growth and Telekom is uniquely positioned within this market

02

Lead in customer experience

Our stable top-line growth focuses on four key drivers: Expanding

• ur converged household penetration, continuing more for more and

multi-brand approach in mobile, leveraging our improved broadband networks and TV proposition, and continued low churn through best-in-class service

03

Lead in business productivity

“Mittelstandsinitiative 2.0” will further contribute to our strong growth momentum in the B2B market with secure ICT solutions

04

Lead in technology – fixed

Finalizing our super-vectoring rollout and then reallocating our high budget towards fiber will yield strong broadband growth while addressing political concerns. Our proposed co-investment will ensure a fair risk reward

3

05

Lead in technology – mobile

Leveraging our backhaul capacity and unprecedented site expansion while increasing speed and capacity with massive MIMO, SDRAN technology and enable innovative 5G services

06

Value Transformation

Indirect cost reduction of €750 mn by 2021 through automation,

• perational excellence, and retirement. Improvements supported by

consolidating management functions, flexible IT-architecture and investing into agile development skills

07

Financial Outlook

Continue our growth path of > 1% in revenue, +2–2.5% in adj. EBITDA and +4–5% in cash contribution with stable Cash Capex and Special factors (Cash)

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

Review 2014 – 2018

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

Ambition level 2018 Achievements 2017 Delivered/on track

SOLID delivery on key promises

Market

 #1 in FMC with MagentaEINS: 3 mn customers  #1 in Mobile service revenue: ≈ 1%1 CAGR

>36% market share

 #1 Broadband: ≈ +2% CAGR

> 40%2 market share

 Stable Wholesale revenue  3.6 mn customers  #1 Mobile: +1.0%1 CAGR

> 36% market share

 #1 Broadband: +1.1%3 CAGR

≈ 40%2 market share

 +1.2%4 CAGR 2014–2017

Quality

 Customer loyalty (TRI*M): ≈ 64 points  59 points

Financials

 Adj. EBITDA margin: ≈ 42%

(Pro Forma: ≈ 40%)5

 Growing adj. EBITDA: +1–2% CAGR  Growing adj. Cash Contribution: ≈ +2% CAGR  Revenue stabilization: +0.3%1 CAGR  38.4%  +0.8% CAGR 2014–2017  -2.7% CAGR 2014–2017  +0.1%1 CAGR 2014–2017

5

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

3.5 2017 3.33 2014 5.3 2014 5.12 2017

Germany returned to growth in revenue & EBITDA

6

8.4 2014 2017 8.2 2017 6.7 6.7 2014

Mobile service revenue Wholesale Product revenue Broadband revenue

CAGR +1.0%1 CAGR +1.1%

CAGR +0.8%4

CAGR +1.2% Net add share Roaming effect

€ bn

Revenue

€ bn

• Adj. EBITDA

0% 26%

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

1 2 3 2021e 2017 2015

• 1

1 2 3 2021e 2017 2015

Healthy and stable market environment enables Growth

7

Stable economy with positive outlook GDP +2.3% in 20181 Well segmented market. Willingness to pay for quality & service Stable & long-term capacity models for fixed & mobile in place Expected improving regulatory environment Stable IP BSA pricing until 2022, MTR-glidepath defined until 2020

Service revenue (market), growth rate yoy, %

Broadband- & high-speed penetration supporting growth

• High-speed demand increases by

≈ 40% yoy on telco infrastructure

• Broadband growth due to low penetration

(78% HH-penetration4) After 3 years of decline, positive development expected

• 3-player market with capacity models for

MVNOs

• Catch up in mobile usage (still low

average consumption in Germany)

Source: 1 BMWi estimate 2 AnalysysMason/IDC 3 AnalysysMason Telco Market Aug. 2017 4 Credit Suisse Research Mar. 2018

Market insights and trends Mobile market back to growth… …and still positive broadband momentum

Broadband revenue (market), growth rate yoy, % +1.5–2%2 2018–2021e CAGR +2.7%3 2017–2021e CAGR

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

We are uniquely positioned in the german telco market

8

Telekom Market Leader in Germany

3.6 Mn

18 mN #1

≈ 80 %

+20 %1 95 % #1

Unlimited & streamon

Most customers on IP-platform Lead in converged customers Most mobile sites connected via fiber B2B market leader in Germany Winner of most telco service tests IT/cloud growth leader in SMB #1 telco innovator in Germany Outstanding winner of 95% of all network tests

$40 BN

Most valuable telco brand in Germany

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

Strategy 2018 – 2021

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

Germany contributing to Group strategy

10

• Lead in Customer Experience

Strengthen market leadership with stable top line growth in consumer market

• Lead in Business Productivity

Continue strong growth momentum in B2B with secure ICT solutions (“Mittelstandsinitiative 2.0”)

• Lead in Technology

Maintain network leadership based on demand driven network rollout within stable Capex budget

• Value transformation

Clear commitment to efficiency improvements driven by digitalization Save for Growth Investments Simplify, digitalize, accelerate Grow

ONE CONNECTIVITY & PERFECT SERVICE SECURE ICT SOLUTIONS & BIG IOT INTEGRATED GIGABIT NETWORKS Lead In Customer experience Lead in Business Productivity Lead in technology

1 2 3 4

Our strategy Ambition Germany

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

Lead in Customer Experience

11

Customer Experience Leading

Convergence Expanding our converged household penetration with MagentaEINS Mobile Continuing our successful more for more multi-brand approach Broadband/TV/Wholesale Leveraging our improved fiber network & TV proposition Service Continuing low churn through best-in-class service

Key growth drivers

for our Customers

1

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

convergence: continue MagentaEINS success Story

12

Higher customer satisfaction Higher revenue per household Higher customer loyalty Additional revenue per household

+€9.00

Churn rate (mobile/fixed)

• 50%

Net Promoter Score vs. consumer base1

+19pts

MagentaEINS revenue share, % Share MagentaEINS households/ broadband households, %

Cross-sell into base and add additional SIM cards/family

• ffers

Secure high share of revenue in converged offer

More for more strategy pays off Growing converged base with focus on value

21% 35% 2017 2021e 18% ≈ 30% 2021e 2017

+14pp

1

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

Mobile: relevant market segments addressed

• Focus on defending leading position with innovative

services (e.g. StreamOn, Unlimited)

• Differentiate through handset portfolio and pricing
• Aim for fair-share through fast-follower strategy with flexible

“build-yourself” tariffs

• Strong digital heritage & reactive pricing strategy
• Underindexed and focus on revenue stabilization
• Balanced channel presence through wholesale brands &

retail partnerships

13

Premium Smart shopper Discount SIM Cards Revenue

Market value distribution1

Multi-brand strategy with clear focus on premium segment

1

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

mobile: differentiation with innovation & more for more

14

Worry free More 4 More Magenta Mobil XL

3 3 3 3 3

IOT 5G

CAGR ≈+2%2 CAGR +1%1

Innovation Strategy

+3.2% growth

YOY Q1/18

Innovative more for more strategy Mobile service revenues

L S M € bn

Consumer IoT solutions allow ARPU uplift vs. M2M

2017 2014 2021e

1

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

32% 2017 2021e 50% 41% 2015 5% 9%

25/50 Mbit/s

18%

6 Mbit/s 1 Mbit/s

95% 2019e 2018e 62% 33% 2016

broadband: growth with fttx coverage & speed

15

2017 2014 2021e

BANDWIDTH INCREASE Higher speeds yield low churn and good gross-add momentum Increased customer loyalty High-speed customers vs. ADSL broadband TV GROWTH Smart content investments & leading platform increase broadband attractiveness

Broadband churn rate 2017, % Availability of ≥50 Mbit/s CAGR +3-4%3 CAGR +1.1%2 Pay-TV share, %1 € bn

Broadband revenue growth drivers Broadband revenues

• 13pp

1

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

TV: content Aggregator with smart investments

16

• 91
• 67
• 65

260

• Exclusive series: 3.7 mn views2
• Smart content investments with

high customer perception

• Most popular sports content:

Bundesliga Conference & 3. Liga

• Exclusive sports rights: BBL, Ice hockey
• Award winning experience:

Best image/audio quality

• Differentiating features: Voice

control, 2nd screen, mobile app

• Focus on young audience
• New segments: Housing industry

Best content aggregator Lead in sports content New target audience Best user interface

8%

2017

12%

2021e TV market share, % TV net adds FY 2017, k1

Our differentiators drive further growth TDG is the only growing TV operator

1

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

Subscriber Growth

• “Kontingentmodell” as reliable long-term model to

provide access to our fiber infrastructure

• Low churn due to attractive wholesale platform

(bandwidth) ARPA growth

• ARPA increase driven by shift ULL/BSA
• Stable regulatory environment

(fixed IP BSA pricing up to 2022)

Other Access1 2017 3.3 3.7 20142 3.5 2021e

wholesale: driving growth with fiber monetization

17

Access ARPA growth €/month 2021e 13.5 2017 12.6 11.8 2021e 2017 12.3 CAGR +2% CAGR ≈ +2%3 CAGR +1% Wholesale revenues € bn Wholesale access base, mn

Stable Wholesale access base & ARPA growth Ambition

1

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

service: towards a Leading Customer Experience

Customer loyalty (TRI*M), in points

Leading customer experience in products and service Ambition

59 64 2017 2021e Rate of complaints, % 5% 4% ≈1% 2016 2017 2021e

• Simplification of product portfolio
• Seamless customer service on all

channels (e.g. web, hotline, shop)

• Big data analytics for early fault detection
• Proactive customer information in case
• f critical incidents, contract changes, IP

migration, etc.

• Self-service via Mein Magenta App for

reduction of service calls (e.g. contract status & changes, invoice, data usage)

• Self-administration for SMB

(e.g. Cloud PBX)

SMS/year for proactive customer interactions

>1.8 mn

Share of resolved requests in digital channels, %1 2021e 38% 2017 70%

Simple & Seamless Flexible & Digital Proactive

18

1

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

Lead in Business Productivity

19

Business Productivity Lead in

B2B growth areas

Connectivity & Infrastructure Mobile, fixed network, cloud IaaS and M2M Agile Workplace Smartphone, tablet, notebook and office software Business Applications Horizontal, vertical and cloud SaaS

2

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

Mittelstands- initiative

1.0 Mittelstandsinitiative 2.0: secure ICT solutions for SMB

20

5.7 6.5 6.0 2014 2017 2021e

• Further growth in mobile & broadband
• Connectivity & infrastructure: M2M/IoT
• Agile workplace: Cloud PBX & office solutions
• ICT solutions & business applications

Mittelstands- initiative

2.0

€ bn

• Growth in mobile & broadband revenues

+1%

• IT solutions:

SAP & cloud infrastructure for SMB with automatic provisioning +19%

• Business connectivity solutions

+11%

• Security: Mobile security & firewall solutions

+17%

CAGR 2014–2017

B2B market leadership driven by digitalization Ambition

+€300 MN

since 2014

+€500 MN

2017–2021

2

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

Lead in Technology

21

Technology Lead in

Fiber Rollout FTTH/B rollout with intelligent area and technology mix within stable Capex envelope Cooperation & Co-Invest Models Increase of coverage with intelligent cooperation models Mobile Extension of leading mobile network position in reach and quality Network Innovation Innovation leader in 5G network technology and efficient rollout technology

Drivers for network leadership

3

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

Fiber rollout: not many white spots left

22

33% 62%

15% 2016 2019 95% ≈ 80% 2018 Wholebuy Vectoring coverage

Reaching ≈ 80% HH coverage with vectoring in 2019(≈ 62% in 2018)1 ≥100 Mbit/s in 70% of HH (in 2019) Introduction of Super-Vectoring (up to 250 Mbit/s) Wholebuy potential 15% (in 2019) 15 MN

homes connected with Super-Vectoring by end of 2018

TDG building the leading infrastructure in Germany Expected market broadband coverage end of 20192

 Only 5% “white-spots” end of 2019  70% coverage with 1 Gbit/s by cable expected  Further subsidies expected

>>1 Gbit/s

Coverage

50 Mbit/s

Bandwidth 95%

DT and third party FTTC

Cable area Non-cable area

100 Mbit/s 250 Mbit/s

White spots

FTTH/B

400 Mbit/s

Cable & FTTC area

FTTH/B Cable with 400 Mbit/s FTTC/(Super-)Vectoring ≥ 50 Mbit/s

3

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

Fiber rollout: smart area and technology mix

23

+ Cable area 1 2 3 FTTC area White spots Cooperations & co-invest models B2B areas

50 Mbit/s >>1 Gbit/s Bandwidth 95% FTTC area Cable area Non-cable area 100 Mbit/s 250 Mbit/s White spots FTTH/B Coverage 400 Mbit/s FTTH/B Cable with 400 Mbit/s FTTC/(Super-)Vectoring ≥ 50 Mbit/s 1 Cable & FTTC area 3 2

Subsidized rollout of areas with very low bandwidth and high customer demand Areas with strong competition and winback potential for customers lost to cable/other operators Shared investment for efficient rollout & wholebuy Connecting 80% of businesses in business parks with fiber (by early 2020s) Expected German broadband coverage end of 20191 Rollout priorities

3

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

cooperations and co-invest models

24

Open network, based on fair return, risk sharing, and reciprocity

• Commitment Model with annual upfront payments for bitstream

connection fee

• Investment oriented connection fee per line charged to retail

service provider Renting network elements Joint ventures Wholebuy

• Joint rollout of fiber

infrastructure with larger regional carriers (e.g. EWE)

• Renting complementary

infrastructure from regional players (e.g. municipal services)

• Renting infrastructure & active

equipment based on commercial wholesale models (market potential 15% in 2019)

Cooperation models Investment oriented & fair commercial models

€

A B

Central office Connection point

A B

3

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

Fiber rollout: ramping up to 2 mn homes per year

25

• Smart area mix between B2B

areas, competitive areas, FTTC areas and white spots

• Efficient technology mix with

FTTH, FTTB and WTTH (potential: 20–30% of homes where we have fiber available)

• Joint fiber rollout with regional players

(e.g. EWE)

• DT will sell and buy wholesale fiber

access based on fair return, risk sharing and reciprocity

• Improving rollout efficiency

with trenching, data driven rollout, and “FTTH factory”

• Status 2020: ≈ €1,000 per

home passed1

Guardrails fiber rollout

Sma Smart rt Area & Area & Tec Technol

• logy Mix
• gy Mix

Sma Smart rt Coo

• ope

peration ration & C & Co-In Invest est Sma Smart rt In Investin esting

maintaining

stable capex €4.2 bn

p.a.2 Minimum IRR

7.5%3

Ramping up to

2 MN households

p.a. by 2021 Sharing investment risks

with partners

3

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

Reach of LTE network

Mobile: best network in Germany

26

94% 95% 98% 2019e 2018e 2017 LTE Pop coverage

≈ 80% mobile sites connected via fiber 27,000 mobile sites end of 2017 Winner of all major mobile network tests

Mobile Network Best

3

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

Mobile: Extending Mobile leadership position

50 100 150 200 250 Relative frequency (%) 10 60 Average data rate (Mbit/s) 30 40 50 80 90 20 70

Ambition 2021

27

Network expansion

• Improve coverage of highways &

train tracks

• Enhance indoor coverage & quality
• Extend lead in fiber backhaul
• Unprecedented site expansion

(≈ 2,000 additional sites p.a.)

• Differentiation with customer driven

rollout

• Top-speeds in city-centers of 1 Gbit/s
• Increase of capacity with massive MIMO
• Mobile Edge for low latency use cases

Quality improvement Network innovation

Key priorities Ambition: Best customer experience

Source: Connect Mobile Network Test 2018

3

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

Network innovation: forerunner in 5g technology

28

Higher network capacity

• Trials successfully completed
• Capex savings potential through

synergetic rollout with FTTH

1,000x

Lower latency

10x

Higher speed >10 Gbit/s

10x

Increased efficiency €/Mbit/s as efficiency factor1

4x

WTTH/FWA potential 5G Pilot cases with strong partners

• Pilot cases already initiated
• Innovative solutions leveraging 5G

features (e.g. drones, Augmented Reality, remote maintenance)

5G enabling new speed and efficiency levels Pilot use cases with strong partners

3

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

value Transformation

29

Automation Data analytics and smart processes Operational Excellence Predictive servicing and maintenance, less complaints and process optimization Platform Retirement Retirement of platforms, investment in state-of-the-art infrastructure Lean & Agile Organization Lean commercial and sales units, agile central functions and reduction of executive functions €300 mn €250 mn €200 mn 9.2 9.9 2017 2021e

• 750 mn

Indirect costs1

Key drivers for cost reduction

4

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

300 40 2021e 2018e 2017 2021e 2018e 20 35 2017

Automation: bots for customer interactions and simplifying processes

…

Customer interactions with digital assistants, k

 Agile bot development to automize

repetitive tasks

 Significant reduction of

development time compared to traditional IT

 1,500 bots implemented in 2017  Chat bots for improved experience &

efficiency in customer interaction

 AI supported chat to improve service

experience

 E2E field service process in a

single app

 Optimized processes and

handover in technology & service

 Dynamic workflow to avoid

manual errors

AI/DIGITAL ASSISTANTS

Robot transactions, mn

30

PROCESS AUTO BOTS

Key drivers for cost reduction Example: Field Service App

4

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

2016 2021e 2018e

Operational excellence: improving service processes

31

Customer complaints per quarter

past

today

Reduction of complaints through efficiency measures and self-service Ambition

Mein Magenta App as central contract management tool Data analytics to solve occurring issues in advance Training of experts to solve requests in first contact Self-Service Reliability Service Quality Product Quality Dedicated product teams ensure end-to-end quality

4x

Monthly App usage

>80%

Contact resolution rate in 20212

≈99%

Adherence to appointment 20211

70 pts.

TRI*M Entertain TV

• 84%

4

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

Platform Retirement: simplification and end of life

Today’s architecture Legacy architecture

32

IT SIMPLIFICATION PLATFORM RETIREMENT

 Micro-service architecture and increased use of open source

technologies

 Decoupling of architecture and retirement of older IT platforms  Agile methodologies to improve delivery time  Standardized production model for all access technologies  BNG migration and IP transformation for mass market will be

finished in 2019

 Retirement of multiple legacy transport platforms and closing of

locations

Key drivers for cost reduction Example: BNG transformation

4

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

Lean and agile organization: accelerated decisions and improved collaboration

33

 Consolidation of management functions and reduction of hierarchy

to foster accountability

 Introduction of product-tribes and skill-based chapters  Strong focus on software and product development  Improve time to market by agile delivery processes  Strong usage of AI & big data analytics  Reskilling for future capabilities  Agile methodology like scrum or design thinking as standard of collaboration  Agile Academy launched in Jan 2018

Key areas of agile methods and organization

6 2017 2021e 12–18 60% <10% 2017 2021e Average delivery time of software projects, months Share of projects with agile/flexible delivery

Increased agility… … for faster time to market

4

LEAN ORGANIZATION AGILE DEVELOPMENT RESKILLING

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

Financial outlook

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

2021e 21.9 2017 2021e 2017 4.2 2017 2021e 0.3 2021e 3.9 2017 8.4 2021e 2017

FINANCIAL Outlook

35

€ bn € bn

Revenue growth Cash Capex

• Adj. EBITDA

Special factors (Cash) Cash Contribution2

€ bn € bn € bn

CAGR >1%1 CAGR +2–2.5%1 CAGR +4–5% stable stable

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

Mid term ambition level

GROUP STRATEGY Germany Systems Solutions Technology & Innovation T-Mobile US Finance Europe Group Development

MID TERM AMBITION level

37

Mid term ambition level Year

LEAD IN CUSTOMER EXPERIENCE

 #1 in Mobile service revenue: CAGR ≈ +2%1  #1 Broadband revenue: CAGR +3–4%2  MagentaEINS share of broadband households: ≈ 30%

2017–2021e 2017–2021e 2021e LEAD IN BUSINESS PRODUCTIVITY

 Growing B2B revenues by +€500 mn

2017–2021e LEAD IN TECHNOLOGY

 Ramping up to 2 mn households p.a.

by 2021e VALUE TRANSFORMATION

 Reduction of Indirect cost by €750 mn (net)

2017–2021e FINANCIALS

 Growing Revenue: CAGR > 1%3  Growing adj. EBITDA: CAGR +2–2.5%3  Growing Cash Contribution4: CAGR +4–5%

2017–2021e 2017–2021e 2017–2021e